Contractors and consultants have been warned that the days of cosy partnering arrangements are numbered, as major clients look to cut costs.
Major clients in the rail, water and aviation industries are gearing up to scrap long-term framework deals in a bid to slash costs.
Last week Network Rail told suppliers that it had to make fundamental changes in its relationships to stave off a £4bn overspend.
And water companies, fearful of a tough deal on investment spending from Ofwat in today’s draft price determination are also expected to make sweeping changes to dealings with their supply chains.
Airport operator BAA announced in May that it planned to tear up its existing framework deals and revert to traditional competitive tender for almost all of its major projects.
A new approach
BAA’s framework deals overhaul is being driven by new capital programmes director Steve Morgan. He wants all work over £25M to be competitively tendered.
“I am not throwing out [framework procurement] but I am approaching it in a very different way. Competition is the best way for me to demonstrate value for money to the regulators,” he said.
“Competition is the best way for me to demonstrate value for money.”
Steve Morgan, BAA
Network Rail has yet to set out its plans to shake up procurement, but chief executive Iain Coucher has told suppliers that the company’s approach must change if it is to survive.
“If we continue to spend at the current rate, we will overspend by over £4bn, and we will not let that happen,” he said.
“It would bankrupt Network Rail and put the industry right back to 2001. We would lose the massive gains we as an entire industry have made.”
Coucher wants to develop “professional and mutually beneficial relationships with the supply chain” but said that this commitment had to be matched by the supply chain.
Efficiencies in the supply chain
Water companies are also expected to get tougher with their supply chains following today’s price settlement for 2010 to 2015.
“If partnering has worked then how are there still efficiencies to be found in the capital programme?” asked cost consultant EC Harris partner Terry Povall.
“There are still a lot of efficiencies to make and the key area is the supply chain,” he said. Povall warned that consultants would be hit by the need to make efficiencies.
“Consultants will be under pressure,” he said. “One of the downsides of partnering is the up front cost, which is too high. A lot of people say it is better to take the costs up front than at the end of a job in claims. But I think it’s just a bit too much cost up front.
“And when you spend more time planning and designing rather than building something that doesn’t seem right.”